In most physical IT infrastructure, resource utilization is very low: 15% is not an uncommon utilization for a server, 5% for a desktop. This means that customers have purchased far more IT infrastructure than they need, and this encourages sharing of such physical infrastructure resources to save costs. A known example is VLANs (Virtual Local Area Network). Another example is use of spare compute cycles on desktops and servers to perform large scale computations: grid applications. These examples require isolation of the network traffic, the data storage and processing of these computations from other tasks using the same infrastructure, to avoid undesirable interference between tasks. A VLAN involves physically connected ports grouped together by network hardware that supports VLANs. These VLANs are each treated as completely separate entities, and can only be joined together by a router. In other words it is a network of computers that behave as if they are connected to the same wire even though they may actually be physically located on different segments of a LAN. VLANs are configured through software rather than hardware, which means that when a computer is physically moved to another location, it can stay on the same VLAN without any hardware reconfiguration.
It is also known to provide a VPN (Virtual private network) which can be defined as a network of secure links over a public IP infrastructure. Technologies that fit in this category included Point-to-Point Tunneling Protocol, Layer 2 tunneling protocol and IP Security.
Overlay networks are known, created on top of physical network infrastructure, and make it easier to change the network configuration, abstracting devices from the configuration of the real network. Overlay networks are discussed in the literature, for example see:                Dynamic Internet Overlay Deployment and Management Using the X-Bone., Joe Touch, Computer Networks, July 2001, pp 117-135;        Violin: Virtual Internetworking on Overlay Infrastructure, X. Jiang, D. Xu, Purdue University Department of Computer Science, CS Technical Report CSD TR 03-027, Purdue University, July 2003.        
These approaches operate at the Internet Protocol (IP) level, layer 3, tunneling IP inside IP and configuring routing to build their overlays.
Virtual machine technology is a known mechanism to run operating system instances on one physical machine independently of other operating system instances. It is known, within a single physical machine, to have two virtual machines connected by a virtual network on this machine. VMware is a known example of virtual machine technology, and can provide isolated environments for different operating system instances running on the same physical machine. However, each operating system instance running under VMware will see the same networking environment, in other words, the same single infrastructure configuration (where infrastructure means arrangement of processing, storage and network resources). A virtual network of virtual machines on the same physical node can be done by VMWare, by having a virtual LAN switch with ports on the single physical node. Virtual machines on different physical machines are coupled using the physical network. The terms “virtual network” and “virtual machine” are used here, in their usual sense, to mean a network or machine which is a software entity or entities with some independence from an underlying real or physical machine or real or physical network links, and is used where there is a level of indirection, or some mediation between the resource user and the physical resource. For example a virtual machine can typically be moved from one physical machine to another without changing its identity, and a virtual network can have a topology or address map which differs from that of a physical network or networks which are used by the virtual network.